- REUTERS/Katherine Taylor
- Amazon’s third-quarter report disappointed investors and prompted a massive sell-off, but it’s not yet time to buy the dip, Barclays analyst Ross Sandler said in a Thursday note.
- The company historically sees revenue lag in the fourth quarter, and Amazon’s push into one-day shipping will further intensify the slowdown in the short-term, according to Sandler.
- Buying the dip in Amazon stock is a good idea “in the 7th-8th inning of its investment cycles,” but shares are still in the “3rd-4th inning,” he wrote.
- Watch Amazon trade live here.
Amazon’s third-quarter report led shares to sink to their lowest levels in months, but Barclays says investors should wait before buying the cheapened stock.
The ecommerce giant saw its stock tumble as much as 9% in late Thursday trading after it beat revenue estimates but posted worse-than-expected profits. The company also lowered its guidance for the fourth quarter as it ramps up its one-day shipping program and invests in core businesses.
The internal spending “will no doubt” place the company in a “tremendous competitive position,” but it’s still too early for investors to buy the dip, Barclays analyst Ross Sandler wrote in a Thursday note.
“Historically it’s a good idea to buy AMZN shares in the 7th-8th inning of its investment cycles, closer to where we are coming out, but unfortunately it feels like we are only in the 3rd-4th inning,” Sandler said.
Barclays lowered its price target for Amazon stock to $2,000 per share from $2,180 Thursday, maintaining an “overweight” rating and implying a 12.3% upside. The bank anticipates revenue growth to slow through 2021 as Amazon Web Services decelerates from its once-rapid pace of growth.
The company also tends to slow in the fourth quarter, and the trend will only be intensified by its expensive shipping investment, Sandler said.
“The push to 1-Day is driving up costs and creating stress everywhere in the system (exacerbated in 4Q) from outbound shipping, forward inventory management, fulfilment and headcount, marketing, etc., all of which should persist into mid-2020,” he wrote.
However, the analyst said that once one-day shipping is rolled out, the program will have “a flywheel effect” of increasing page views, boosting orders, and driving up advertising revenue. The upgraded Prime membership gives Amazon “a significant competitive advantage,” and despite its slowing growth, the company’s cloud computing business “could be a $100B business over time,” Sandler said.
Amazon traded at $1,743.24 per share at 11:15 a.m. ET Friday, up roughly 16% year-to-date.
The company has 52 “buy” ratings, two “hold” ratings, and no “sell” ratings, with a consensus price target of $2,188.41, according to Bloomberg data.
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